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Transcript of AIG Presentation
Corey Thomas (in spirit) Case Summary Company Culture Incented to take risks
Lack of transparency
Authoritarian style leadership
Lack of regulatory oversight Ignored the 3 theories Consequentialist
Theory Consequentialist Theory
The individuals in the financial products division (the few) got high payouts for taking
huge risks that burdened the rest of the company (the many) Deontological
Theory Deontological Theory
The individuals in the financial products division ignored their obligations to the
shareholders and clients by over-extending the insured risk beyond what the company could pay back Virtue Ethics
Theory Virtue Ethics Theory
The individuals in the financial products division weren’t acting for moral “rightness” but instead to maximize short term profits This cultural structure is a ticking time bomb. Unethical behavior is practically unavoidable Case focuses on the Financial Products unit AIG was worth $200 billion in 2007 2007 net worth of $200 billion
housing market collapse
super risky "insurance" practices
= Received a controversial
government bailout in 2008
worth $180 billion over
its course More than 98% decrease! 2009 net-worth of only $3.5 billion Government also took 79.9% ownership of AIG Saving AIG was meant to stop a total financial market meltdown
Highly controversial decision to this day What's the harm if nobody is looking? Passed down through Greenberg to successors Information hidden from auditors and shareholders Encouraged risky behavior through massive bonuses Did they "go wrong?" HELL YES THEY WENT WRONG! 3 Ethical Theories 8 Steps to Ethical Decision Making Messages from the articles AIG's 8 steps 1. Determine the opportunity that will make the most money in the shortest period of time.
2. Count the money you made.
3. Figure out how to spend your massive bonus.
4. I am going to Puerta Viarta. Forget the other steps. Designer, Teacher, Steward Top management designed the Financial Products unit to function independant of the organizational mission/vision Compensation structure taught the employees that risk takers are rewarded... handsomely Greensburg was weary of the Financial Planning unit from the beginning but did nothing about it Integrity as a Strategy AIG failed to build integrity into the system. In fact, they purposely incentivised risky, unethical behavior to gain the all mighty dollar Corporate Code A brand new code would have been required as the Financial Planning unit was different from any other business unit they had. Top management must follow the code or it will be pointless Where? How? Any questions? American International Group Est. 1919 Shanghai, China The Big Picture Summarizing the Failure at AIG In the end... The Bailout